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Precontractual Investigation and Sequential Screening

  • Terstiege, Stefan
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    Should contract design induce an agent to conduct a precontractual investigation even though, in any case, the agent will become fully informed after the signing of the contract? This paper shows that imperfect investigations might be encouraged. The result stands in contrast to previous studies, which focus on perfect investigations. The contrast exists because if precontractual investigation is perfect, the benefits of sequential screening vanish.

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    Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 429.

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    Date of creation: 22 Oct 2013
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    Handle: RePEc:trf:wpaper:429
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    1. Cremer, J. & Khalil, F., 1991. "Gathering Information Before Signing a Contract," Working Papers 91-16, University of Washington, Department of Economics.
    2. Ralph Boleslavsky & Maher Said, 2011. "Progressive Screening: Long-Term Contracting with a Privately Known Stochastic Process," Working Papers 2011-5, University of Miami, Department of Economics.
    3. Bergemann, Dirk & Pesendorfer, Martin, 2001. "Information Structures in Optimal Auctions," CEPR Discussion Papers 2991, C.E.P.R. Discussion Papers.
    4. Marco Battaglini, 2005. "Long-Term Contracting with Markovian Consumers," American Economic Review, American Economic Association, vol. 95(3), pages 637-658, June.
    5. Terstiege, Stefan, 2012. "Endogenous information and stochastic contracts," Games and Economic Behavior, Elsevier, vol. 76(2), pages 535-547.
    6. Xianwen Shi, 2007. "Optimal Auctions with Information Acquisition," Working Papers tecipa-302, University of Toronto, Department of Economics.
    7. Cremer, Jacques & Khalil, Fahad & Rochet, Jean-Charles, 1998. "Contracts and Productive Information Gathering," Games and Economic Behavior, Elsevier, vol. 25(2), pages 174-193, November.
    8. Craswell, Richard, 1988. "Precontractual Investigation as an Optimal Precaution Problem," The Journal of Legal Studies, University of Chicago Press, vol. 17(2), pages 401-36, June.
    9. Roger B. Myerson, 1984. "Multistage Games with Communication," Discussion Papers 590, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    10. Marco Battaglini & Rohit Lamba, 2012. "Optimal Dynamic Contracting," Working Papers 1431, Princeton University, Department of Economics, Econometric Research Program..
    11. Compte, Olivier & Jehiel, Philippe, 2008. "Gathering information before signing a contract: A screening perspective," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 206-212, January.
    12. Dezsö SZALAY, 2004. "Contracts with Endogenous Information," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 04.05, Université de Lausanne, Faculté des HEC, DEEP.
    13. Anke Kessler, 1998. "The Value of Ignorance," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 339-354, Summer.
    14. Lewis, Tracy R & Sappington, David E M, 1997. "Information Management in Incentive Problems," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 796-821, August.
    15. Krähmer, Daniel & Strausz, Roland, 2011. "The Benefits of Sequential Screening," CEPR Discussion Papers 8629, C.E.P.R. Discussion Papers.
    16. Alex Gershkov, 2009. "Optimal auctions and information disclosure," Review of Economic Design, Springer;Society for Economic Design, vol. 13(4), pages 335-344, December.
    17. Daniel Krämer & Roland Strausz, 2009. "Optimal Procurement Contracts with Pre--Project Planning," Papers 036, Departmental Working Papers.
    18. Fuente,Angel de la, 2000. "Mathematical Methods and Models for Economists," Cambridge Books, Cambridge University Press, number 9780521585293, November.
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